Bloomberg News

Farm Subsidies Divide Lobbyists in Debate Over U.S. Budget Cuts

November 01, 2011

Oct. 31 (Bloomberg) -- Agriculture lobbyists are divided over whether to end guaranteed subsidies to growers as rural lawmakers face a deadline tomorrow to propose $23 billion in farm-spending cuts.

The House and Senate agriculture committees have received at least seven proposals from interest groups such as the National Cotton Council and National Corn Growers Association that would end “direct payments” made to farmers regardless of crop prices, according to a report by Carl Zulauf, an Ohio State University economist. The American Farm Bureau Federation, the largest farmer group, is trying to save the subsidies.

The differences are complicating efforts by lawmakers meeting behind closed doors to craft a 10-year plan for cuts in farm spending. The proposal from the agriculture panels may form the foundation of the next farm-policy bill as some payments to growers of corn, cotton and other crops are replaced by initiatives that may be less costly.

“This is not the natural order of things for the congressional agriculture committees,” which normally seek ways to increase spending, former Agriculture Secretary Dan Glickman said in an interview. Glickman served on the House farm panel when he was a Democratic congressman from Kansas.

The committees pledged on Oct. 17 to send the congressional supercommittee, charged with reducing the U.S. deficit, recommendations by tomorrow for a maximum of $23 billion in agriculture cuts over 10 years.

Subsidies Vulnerable

Farm subsidies estimated at $10.2 billion this year are especially vulnerable to cutting after the U.S. Department of Agriculture forecast record farm profits of $103.6 billion, Mark McMinimy, an analyst for MF Global Inc. in Washington, said in an interview. About $4.7 billion of the total may be in direct payments.

Lawmakers from both parties say they expect the subsidies will account for the bulk of the cuts in USDA spending as the supercommittee tries to reduce the deficit for the entire government by at least $1.2 trillion.

The top participants in the talks are Michigan Democrat Debbie Stabenow, the chairwoman of the Senate agriculture committee, and senior Republican Pat Roberts of Kansas; and House Agriculture Committee Chairman Frank Lucas, Republican of Oklahoma, and that panel’s top Democrat, Collin Peterson of Minnesota. So far, none are commenting on the negotiations.

Direct payments may be most vulnerable because of high prices, Glickman said. Average corn and cotton futures this year are more than 50 percent higher than in 2010, while wheat and soybeans are up at least 26 percent.

Insurance Supplement

Farm-state lawmakers including Republican Senator John Thune of South Dakota and Democratic Senator Sherrod Brown of Ohio have proposed replacing direct payments with a plan to guarantee revenue when crop prices fall. This would be a supplement to crop insurance, which covers losses from extreme weather and natural disasters and may reap increased funding as other programs disappear. Variations of their idea, first put into policy in the 2008 farm bill, also are in other proposals.

The American Farm Bureau Federation, with more than 6.2 million individual and household members, is opposed to the so- called shallow-loss proposal, saying it would cost more than projected.

‘Not Given Up’

“We have not given up on direct payments in some form,” Mary Kay Thatcher, the Washington-based organization’s chief lobbyist, said last week in an interview. “Our farmers would like some sort of option that would include that.”

Conservation payments to farmers who use environment- friendly practices or who take land out of production to improve soil and water quality may also be a target for cuts, Daryll Ray, director of the Agricultural Policy Analysis Center at the University of Tennessee in Knoxville, said in an interview.

The land enrolled in the USDA’s biggest environmental initiative, the Conservation Reserve Program, is already down to 31.3 million acres, a 15 percent drop from a 2007 peak, as high prices prompt farmers to put more land into production. Total conservation spending is forecast at $3.38 billion this year, down 2.1 percent from last year.

Cuts in programs that are based on assumptions of current high prices may backfire if the markets turn and growers see profits tumble, Ray said, resulting either in failed farms or bigger-than-expected taxpayer costs. The previous attempt to wean farmers from subsidies, the 1996 “Freedom to Farm” bill, resulted in more than $30 billion in government bailouts when prices collapsed later in the decade. The current effort could repeat that, he said.

Prosperous Times

“We are extrapolating one of the most prosperous times in agriculture over the next 10 years,” Ray said.

The 12-member bipartisan supercommitee has until Nov. 23 to come up with its deficit-reduction plan. Congress will then vote on the measure without amendments. Rejection would trigger automatic, across-the-board spending cuts.

The panel’s plan for agriculture, because it will require major changes to politically sensitive commodity programs, may become the blueprint for the next farm bill, Thatcher of the American Farm Bureau said. Lawmakers had planned to begin work next year on the legislation, which governs farm policy and is usually written every five years.

That may allow congressional agriculture-committee members to avoid the usual months of debate over the legislation during which they are usually criticized by environmentalists, budget- cutters, humanitarian-aid advocates and other opponents of U.S. farm policy. Some of those critics are now expressing alarm at the lack of openness in the budget-cutting process that will decide the new farm policies.

“The supercommittee process was not designed to pass a major piece of legislation with no debate,” Ken Cook, head of the Environmental Working Group, a Washington organization that opposes most farm-subsidy spending and supports conservation programs, said in an interview. “There’s an opportunity to do real good here, and we have a process that’s happening with no sunshine, no accountability.”

--Editors: Daniel Enoch, Larry Liebert.

-0- Nov/01/2011 13:38 GMT

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net


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